Shadow Economies and Corruption All Over the World - Index of - IZA

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economy. 33) However, a number of difficulties beset this approach. First, using tax compliance data are equivalent to using a (possibly biased) sample of the population. In general, the selection of tax payers for tax audit is not random but based on properties of submitted (tax) returns that indicate a certain likelihood of (tax) fraud. Consequently, such a sample is not a random one of the whole population, and estimates of the shadow based upon a biased sample may not be accurate. Second estimates based on tax audits reflect only that portion of shadow economy income that the authorities succeed in discovering, and this is likely to be only a fraction of hidden income. A further disadvantage of these two direct methods (surveys and tax auditing) is that they lead only to point estimates. Moreover, it is unlikely that they capture all „shadow“ activities, so they can be seen as providing lower bound estimates. They are unable to provide estimates of the development and growth of the shadow economy over a longer period of time. As already argued, they have, however at least one considerable advantage – they can provide detailed information about shadow economy activities and the structure and composition of those who work in the shadow economy. 6.2 Indirect Approaches These approaches, which are also called „indicator“ approaches, are mostly macroeconomic ones and use various economic and other indicators that contain information about the development of the shadow economy (over time). Currently there are five indicators that leave some „traces“ of the shadow economy. 6.2.1 The Discrepancy between National Expenditure and Income Statistics This approach is based on discrepancies between income and expenditure statistics. In national accounting the income measure of GNP should be equal to the expenditure measure of GNP. Thus, if an independent estimate of the expenditure site of the national accounts is available, the gap between the expenditure measure and the income measure can be used as an indicator of the extent of the black economy. 34) Since national accounts statisticians are 33) In the United States, IRS (1979, 1983), Simon and Witte (1982), Witte (1987), Clotefelter (1983), and Feige (1986). For a more detailed discussion, see Dallago (1990) and Thomas (1992). 34) See, e.g., Franz (1983) for Austria; MacAfee (1980) O’Higgins (1989) and Smith (1985), for Great Britain; Petersen (1982) and Del Boca (1981) for Germany; Park (1979) for the United States. For a critical survey, see Thomas (1992). 40
anxious to minimize this discrepancy, the initial discrepancy or first estimate, rather than the published discrepancy should be employed as an estimate of the shadow economy. If all the components of the expenditure site are measured without error, then this approach would indeed yield a good estimate of the scale of the shadow economy. Unfortunately, however, this is not the case. Instead, the discrepancy reflects all omissions and errors everywhere in the national accounts statistics as well as the shadow economy activity. These estimates may therefore be very crude and of questionable reliability. 35) 6.2.2 The Discrepancy between the Official and Actual Labor Force A decline in participation of the labor force in the official economy can be seen as an indication of increased activity in the shadow economy. If total labor force participation is assumed to be constant, than a decreasing official rate of participation can be seen as an indicator of an increase in the activities in the shadow economy, ceteris paribus. 36) One weakness of this method is that differences in the rate of participation may also have other causes. Also, people can work in the shadow economy and have a job in the „official’ economy. Therefore such estimates may be viewed as weak indicators of the size and development of the shadow economy. 6.2.3 The Transactions Approach This approach has been most fully developed by Feige. 37) It is based upon the assumption, that there is a constant relation over time between the volume of transaction and official GNP, as summarized by the well-known Fisherian quantity equation, or M*V = p*T (with M = money, V = velocity, p = prices, and T = total transactions). Assumptions also have to be made about the velocity of money and about the relationships between the value of total transactions (p*T) and total (=official + unofficial) nominal GNP. Relating total nominal GNP to total transactions, the GNP of the shadow economy can be calculated by subtracting the official GNP from total nominal GNP. However, to derive figures for the shadow economy, one must also assume a base year in which there is no shadow economy and 35) A related approach is pursued by Pissarides and Weber (1988), who use micro data from household budget surveys to estimate the extend of income understatement by self-employed. 36) Such studies have been made for Italy, see e.g., Contini (1981) and Del Boca (1981); for the United States, see O’Neill (1983), for a critical survey, see again Thomas (1992). 37) For an extended description of this approach, see Feige (1996); for a further application for the Netherlands, Boeschoten and Fase (1984), and for Germany, Langfeldt (1984). 41
Page 1 and 2: DISCUSSION PAPER SERIES IZA DP No.
Page 3 and 4: IZA Discussion Paper No. 2315 Septe
Page 5 and 6: 1 Introduction As corruption and sh
Page 7 and 8: arter transactions - and so include
Page 9 and 10: (1993) found similar reactions of p
Page 11 and 12: laws and regulations and less bribe
Page 13 and 14: Source: Schneider (2004) Table 2.3:
Page 15 and 16: Table 2.6: Values/Attitudes of the
Page 17 and 18: was done for three different points
Page 19 and 20: Summarizing, the econometric result
Page 21 and 22: Table 3.2: DYMIMIC Estimation of th
Page 23 and 24: 90%, 95%, or 99% confidence level.
Page 25 and 26: 7 Cameroon 32,8 33,7 34,9 8 Central
Page 27 and 28: with 65.3%. and Peru with 60.9% of
Page 29 and 30: 3.2.3 Highly developed OECD-Countri
Page 31 and 32: Table 3.2.7: The Size of the Shadow
Page 33 and 34: In low income countries, to the con
Page 35 and 36: Table 4.1: Empirical Results of the
Page 37 and 38: The second conclusion is, shadow ec
Page 39 and 40: craftsman sector (including repairi
Page 41: Table 6.1: Size of the supplied sha
Page 45 and 46: included in the estimation equation
Page 47 and 48: money in the official economy, and
Page 49 and 50: Di: the sum on number of dependants
Page 51 and 52: There is a large body of literature
Page 53 and 54: Some critical Points of the Differe
Page 55 and 56: Table 6.5: The Size of the Shadow E
Page 57 and 58: 7 Appendix 2: Definition of the var
Page 59 and 60: (8) Share of Indirect Taxation and
Page 61 and 62: 9 References Ahumada, Hildegard, Al
Page 63 and 64: Frey, Bruno S. and Hannelore Weck (
Page 65 and 66: Neck, Reinhard, Hofreither, Markus
Page 67: Witte, A.D. (1987): The nature and

Shadow Economies and Corruption All Over the World - Index of - IZA

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